It’s been a whirlwind five years for Lloyds (LSE: LLOY) shares. Investors back then would have had to muster up 57p for a share in the Black Horse Bank. At times, the stock’s price has been above 64p. However, today I could grab one for just 43p.
I already own Lloyds shares. In fact, they make up a large part of my portfolio. I think the shares look cheap. And with that, I’m strongly considering buying some more.
A source of income
There’s a mix of reasons I own Lloyds shares. But I’ll start with passive income. At 5.9%, there are other stocks out there offering higher dividend yields. But nearly 6% is not be sniffed at.
This comfortably tops the FTSE 100 average. And despite the UK base rate being at 5.25%, banks have come under pressure for not passing this on to savers. So, it also beats me leaving my cash in a savings account.
Dividends can be volatile. We saw in the pandemic that businesses can reduce them. Even worse, they can be stopped completely. But I’m fairly confident Lloyds will pay out, given its dividend is covered around three times by earnings. Looking forward, some analysts forecast the Lloyds dividend could reach the 7% mark.
The bank has also undertaken numerous share buyback schemes. The most recent one amounted to nearly £2bn.
Weak outlook
With that said, it’s not all good news. And I fully expect the short term to be rough for the stock. First of all, Lloyds is more exposed than its competitors to the UK economy given its domestic focus. Any blips in the UK will have a greater impact on the firm than its peers. A recent prediction that the UK economy won’t experience growth until 2025 could signal rough times ahead for the business.
On top of that, as the UK’s largest mortgage lender, a weak outlook for the housing market may also prove to be a stumbling block.
Still confident
Regardless, this isn’t to say Lloyds can’t cope. The bank has a strong balance sheet, highlighted by its CET1 capital ratio (a measure of solvency) of 14.6%. This sits above the 12.5% target, as well as 1% higher than Lloyds’ management buffer.
The stock also looks cheap. Its price-to-earnings ratio for the last 12 months is around five. Its price-to-book ratio, which measures the price of the stock relative to the value of its assets, is just 0.6.
Finally, I’m a Fool. So, when I buy a stock, I plan to own it for years to come. With that in mind, I’m a fan of Lloyds’ latest strategic investment. With £3bn, the firm is taking strides such as upgrading its digital capabilities in an attempt to drive revenues.
Time to buy?
At 43p, Lloyds shares look cheap. And at that price, if I had some spare cash, I’d buy.
I’d imagine the share price will stagnate in the months ahead given the outlook for the UK economy. Yet despite that, I think at their current price the shares could be a steal.
A low valuation coupled with strong plans for the future is what I like to see. I’m also a fan of the passive income Lloyds shares will provide.
The post Would I be silly not to buy Lloyds shares at 43p? appeared first on The Motley Fool UK.
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Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
